{"id":12858148,"date":"2026-02-16T17:07:28","date_gmt":"2026-02-16T22:07:28","guid":{"rendered":"https:\/\/www.philstockworld.com\/?p=12858148"},"modified":"2026-02-18T00:42:45","modified_gmt":"2026-02-18T05:42:45","slug":"hedge-funder-philip-davis-walks-though-the-heat-formula","status":"publish","type":"post","link":"https:\/\/www.philstockworld.com\/2026\/02\/16\/hedge-funder-philip-davis-walks-though-the-heat-formula\/","title":{"rendered":"Hedge funder Philip Davis walks though the HEAT Formula"},"content":{"rendered":"<h2 class=\"style-scope ytd-watch-metadata\"><a href=\"https:\/\/www.youtube.com\/watch?v=tfGU0KYb8Rk\" target=\"_blank\" rel=\"noopener\">Phil walks though the HEAT Formula<\/a><\/h2>\n<p><a href=\"https:\/\/www.youtube.com\/@TuttleCap\" target=\"_blank\" rel=\"noopener\">Financial H.E.A.T Podcast with Matthew Tuttle<\/a><\/p>\n<p><em>Phil discusses options strategies with Matthew Tuttle and Patrick Neville of Tuttle Capital Management.<\/em><\/p>\n<p><iframe loading=\"lazy\" title=\"YouTube video player\" src=\"https:\/\/www.youtube.com\/embed\/tfGU0KYb8Rk?si=nTkiJiNUwdlD1Lx5\" width=\"560\" height=\"315\" frameborder=\"0\" allowfullscreen=\"allowfullscreen\"><\/iframe><\/p>\n<p><strong>Timeline<\/strong><\/p>\n<p>00:00 Market Overview and Thematic Investing<br \/>\n03:17 The Secret Gap: Government Innovation and Future Technologies<br \/>\n06:09 Investment Philosophy: Be the House, Not the Gambler<br \/>\n09:13 Options Strategies: Selling Calls and Puts<br \/>\n12:13 Value Investing: Identifying Undervalued Stocks<br \/>\n15:01 Hedging Strategies: Protecting Against Market Downturns<br \/>\n17:55 The Role of AI in Market Analysis<br \/>\n20:54 Commercial Real Estate and Regional Bank Risks<br \/>\n23:58 The Future of Work: AI and Job Displacement<br \/>\n26:44 Asymmetry in Trading: Risk vs. Reward<br \/>\n29:52 The Illusion of the S&amp;P 500<br \/>\n32:35 Thoughts and Predictions<\/p>\n<p><strong>Summary<\/strong><\/p>\n<h3 data-start=\"467\" data-end=\"523\">Phil\u2019s \u201cBe the House\u201d Framework in an AI-Driven Market<\/h3>\n<p data-start=\"525\" data-end=\"689\">Markets look fragile. AI is reshaping industries in real time. Capex is surging. Commercial real estate delinquencies are rising. Regional banks are under pressure.<\/p>\n<p data-start=\"691\" data-end=\"770\">Against that backdrop, Phil returns to a principle he has emphasized for years:<\/p>\n<blockquote data-start=\"772\" data-end=\"808\">\n<p data-start=\"774\" data-end=\"808\"><strong data-start=\"774\" data-end=\"808\">Be the house, not the gambler.<\/strong><\/p>\n<\/blockquote>\n<p data-start=\"810\" data-end=\"1029\">Instead of trying to predict where the market goes next week, he builds positions apparent in undervalued companies and systematically sells premium against them \u2014 while keeping structured hedges in place for tail risk.<\/p>\n<p data-start=\"1031\" data-end=\"1171\">This is a value-based options framework built on repeatable statistical edge.<\/p>\n<hr data-start=\"1263\" data-end=\"1266\" \/>\n<h3 data-start=\"1268\" data-end=\"1316\">The Core Philosophy: Selling Premium on Value<\/h3>\n<p data-start=\"1318\" data-end=\"1356\">Phil\u2019s approach starts with valuation.<\/p>\n<p data-start=\"1358\" data-end=\"1465\">He does not treat stocks as abstract tickers. He treats them as entire businesses. His central question is: <span style=\"font-family: Verdana, BlinkMacSystemFont, -apple-system, 'Segoe UI', Roboto, Oxygen, Ubuntu, Cantarell, 'Open Sans', 'Helvetica Neue', sans-serif;\">\u201cWould I buy this company outright at this valuation?\u201d<\/span><\/p>\n<p data-start=\"1525\" data-end=\"1655\">If the answer is yes \u2014 and if downside appears limited by fundamental value \u2014 he becomes willing to sell puts and collect premium.<\/p>\n<p data-start=\"1657\" data-end=\"1706\">The goal is not to hit home runs. The goal is to:<\/p>\n<ul>\n<li data-start=\"1710\" data-end=\"1739\">Collect income consistently<\/li>\n<li data-start=\"1742\" data-end=\"1771\">Reduce cost basis over time<\/li>\n<li data-start=\"1774\" data-end=\"1804\">Avoid catastrophic drawdowns<\/li>\n<li data-start=\"1807\" data-end=\"1834\">Compound capital steadily<\/li>\n<\/ul>\n<p data-start=\"1836\" data-end=\"2011\">He explicitly contrasts this with chasing high-multiple names like Netflix, Tesla, or other explosive stocks where option selling can become asymmetric in the wrong direction.<\/p>\n<hr data-start=\"2013\" data-end=\"2016\" \/>\n<h3 data-start=\"2018\" data-end=\"2081\">Stellantis: Volatility + Mispricing = Structured Opportunity<\/h3>\n<p data-start=\"2083\" data-end=\"2189\">Phil describes Stellantis as an example of a stock that sold off sharply after a $22 billion EV write-off.<\/p>\n<p data-start=\"2191\" data-end=\"2241\">His view: the market misinterpreted the write-off.<\/p>\n<ul>\n<li data-start=\"2245\" data-end=\"2307\">Roughly $6 billion was actual cash impact (spread over years).<\/li>\n<li data-start=\"2310\" data-end=\"2339\">The remainder was accounting.<\/li>\n<li data-start=\"2342\" data-end=\"2383\">The write-off may reduce taxes for years.<\/li>\n<\/ul>\n<p data-start=\"2385\" data-end=\"2465\">With the stock around $7.50 at the time of discussion, Phil describes an option structure:<\/p>\n<ul>\n<li data-start=\"2469\" data-end=\"2493\">Sell long-term $6 puts<\/li>\n<li data-start=\"2496\" data-end=\"2528\">Buy the $5 \/ $7.50 call spread<\/li>\n<\/ul>\n<p data-start=\"2530\" data-end=\"2676\">He explains that elevated volatility makes the put premium richer, which helps finance the call spread.<\/p>\n<p data-start=\"2678\" data-end=\"2719\">The logic is asymmetry through valuation:<\/p>\n<p data-start=\"2721\" data-end=\"2791\">If the stock simply stabilizes, the spread pays well relative to cost.<\/p>\n<p data-start=\"2793\" data-end=\"2909\">If assigned, he is willing to own the company at lower levels because he believes its fundamental value supports it.<\/p>\n<hr data-start=\"3020\" data-end=\"3023\" \/>\n<h3 data-start=\"3025\" data-end=\"3081\">IBM: Selling Long-Dated Puts Instead of Buying Shares<\/h3>\n<p data-start=\"3083\" data-end=\"3191\">Rather than buying stock outright at current prices, Phil describes selling long-dated puts to define entry.<\/p>\n<ul data-start=\"3220\" data-end=\"3274\">\n<li data-start=\"3220\" data-end=\"3274\">\n<p data-start=\"3222\" data-end=\"3274\">Selling the 2028 $140 puts for approximately $20<\/p>\n<\/li>\n<\/ul>\n<p data-start=\"3276\" data-end=\"3296\">If IBM is below $140 in 2028, Phil will buy it \u2014 but his effective cost basis would be around $120 because of the premium collected.<\/p>\n<p data-start=\"3430\" data-end=\"3608\">He emphasizes that if his valuation work suggests IBM is worth $120 or more, then getting paid today to potentially own it at that level is superior to buying shares immediately.<\/p>\n<p data-start=\"3610\" data-end=\"3638\">This is the \u201chouse\u201d mindset. Get paid first. Accept ownership only at prices you already want.<\/p>\n<hr data-start=\"3707\" data-end=\"3710\" \/>\n<h3 data-start=\"3712\" data-end=\"3747\">Allocation Blocks and Scaling In<\/h3>\n<p data-start=\"3749\" data-end=\"3809\">A major part of Phil&#8217;s framework is position sizing discipline. He divides capital into what he calls \u201callocation blocks.\u201d Each idea gets a predefined portion of buying power.<\/p>\n<p data-start=\"3924\" data-end=\"3936\">He stresses:<\/p>\n<ul data-start=\"3938\" data-end=\"4120\">\n<li data-start=\"3938\" data-end=\"3981\">\n<p data-start=\"3940\" data-end=\"3981\">Never deploy the full allocation at once.<\/p>\n<\/li>\n<li data-start=\"3982\" data-end=\"4025\">\n<p data-start=\"3984\" data-end=\"4025\">Assume a 20% drawdown is possible.<\/p>\n<\/li>\n<li data-start=\"4026\" data-end=\"4050\">\n<p data-start=\"4028\" data-end=\"4050\">Scale in deliberately.<\/p>\n<\/li>\n<li data-start=\"4051\" data-end=\"4120\">\n<p data-start=\"4053\" data-end=\"4120\">Reserve margin capacity to avoid forced liquidation during crashes.<\/p>\n<\/li>\n<\/ul>\n<p data-start=\"4122\" data-end=\"4226\">This is how he avoids the classic blow-up that happens when investors overcommit before volatility hits.<\/p>\n<hr data-start=\"4228\" data-end=\"4231\" \/>\n<h3 data-start=\"4233\" data-end=\"4291\">Tesla: Long-Dated Bear Put Spread as Downside Insurance<\/h3>\n<p data-start=\"4293\" data-end=\"4392\">Phil also describes a bearish position in Tesla \u2014 not as speculation, but as structural protection. Tesla, in his view, can move violently.\u00a0<\/p>\n<p data-start=\"4394\" data-end=\"4408\">He references:<\/p>\n<ul data-start=\"4410\" data-end=\"4499\">\n<li data-start=\"4410\" data-end=\"4499\">\n<p data-start=\"4412\" data-end=\"4448\">2028 $350 \/ $250 bear put spread<\/p>\n<ul data-start=\"4451\" data-end=\"4499\">\n<li data-start=\"4451\" data-end=\"4473\">\n<p data-start=\"4453\" data-end=\"4473\">Long the $350 puts<\/p>\n<\/li>\n<li data-start=\"4476\" data-end=\"4499\">\n<p data-start=\"4478\" data-end=\"4499\">Short the $250 puts<\/p>\n<\/li>\n<\/ul>\n<\/li>\n<\/ul>\n<hr data-start=\"4757\" data-end=\"4760\" \/>\n<h3 data-start=\"4762\" data-end=\"4809\">Hedging the Portfolio: SQQQ 2028 Call Spread<\/h3>\n<p data-start=\"4811\" data-end=\"4906\">Phil\u2019s broader hedge example uses ProShares UltraPro Short QQQ (SQQQ), a 3x inverse Nasdaq ETF.<\/p>\n<p data-start=\"4908\" data-end=\"4922\">He references:<\/p>\n<ul data-start=\"4924\" data-end=\"5014\">\n<li data-start=\"4924\" data-end=\"5014\">\n<p data-start=\"4926\" data-end=\"4962\">2028 $50 \/ $100 bull call spread<\/p>\n<ul data-start=\"4965\" data-end=\"5014\">\n<li data-start=\"4965\" data-end=\"4987\">\n<p data-start=\"4967\" data-end=\"4987\">Long the $50 calls<\/p>\n<\/li>\n<li data-start=\"4990\" data-end=\"5014\">\n<p data-start=\"4992\" data-end=\"5014\">Short the $100 calls<\/p>\n<\/li>\n<\/ul>\n<\/li>\n<\/ul>\n<p data-start=\"5016\" data-end=\"5097\">He describes the spread costing roughly $10, with a potential $50 maximum payout.<\/p>\n<p data-start=\"5113\" data-end=\"5229\">If the Nasdaq drops 20%, a 3x inverse ETF can spike sharply. That spike pushes the call spread toward maximum value.<\/p>\n<p data-start=\"5231\" data-end=\"5279\">But he emphasizes: <span style=\"font-family: Verdana, BlinkMacSystemFont, -apple-system, 'Segoe UI', Roboto, Oxygen, Ubuntu, Cantarell, 'Open Sans', 'Helvetica Neue', sans-serif;\">Hedge only about half of expected losses &#8212; b<\/span>ecause the purpose of hedging is not to fully offset losses \u2014 it&#8217;s to generate cash during crashes so you can buy undervalued stocks at lower prices and \u201cleapfrog\u201d when markets recover.<\/p>\n<p data-start=\"5521\" data-end=\"5562\">He describes this as a two-engine system:<\/p>\n<ol data-start=\"5564\" data-end=\"5610\">\n<li data-start=\"5564\" data-end=\"5589\">\n<p data-start=\"5567\" data-end=\"5589\">Long value portfolio<\/p>\n<\/li>\n<li data-start=\"5590\" data-end=\"5610\">\n<p data-start=\"5593\" data-end=\"5610\">Hedge portfolio<\/p>\n<\/li>\n<\/ol>\n<p data-start=\"5612\" data-end=\"5704\">When markets fall \u2192 hedges fund buying.<br data-start=\"5651\" data-end=\"5654\" \/><br \/>\nWhen markets rise \u2192 trim gains and rebuild hedges.<\/p>\n<hr data-start=\"5706\" data-end=\"5709\" \/>\n<h3 data-start=\"5711\" data-end=\"5746\">AI, Capex, and Structural Shifts<\/h3>\n<p data-start=\"5748\" data-end=\"5802\">Phil also ties this framework to broader macro themes. He argues that AI-driven capex is creating consolidation:<\/p>\n<ul>\n<li data-start=\"5865\" data-end=\"5896\">Massive infrastructure spending<\/li>\n<li data-start=\"5899\" data-end=\"5923\">Smaller firms priced out<\/li>\n<li data-start=\"5926\" data-end=\"5963\">Large companies entrenching dominance<\/li>\n<\/ul>\n<p data-start=\"5965\" data-end=\"6101\">He describes the S&amp;P 500 as an \u201cillusion index\u201d \u2014 because weaker companies are removed and replaced, masking underlying economic stress.<\/p>\n<p data-start=\"6103\" data-end=\"6169\">He also highlights commercial real estate and regional bank risks:<\/p>\n<ul>\n<li data-start=\"6173\" data-end=\"6209\">Office vacancy rates remain elevated<\/li>\n<li data-start=\"6212\" data-end=\"6248\">Lease rollovers will expose weakness<\/li>\n<li data-start=\"6251\" data-end=\"6292\">Regional banks are exposed to this stress<\/li>\n<\/ul>\n<p data-start=\"6294\" data-end=\"6404\">He references positioning via a 2x inverse regional bank ETF (SKRE), though he notes liquidity considerations.<\/p>\n<hr data-start=\"6406\" data-end=\"6409\" \/>\n<h3 data-start=\"6411\" data-end=\"6430\">The Takeaway<\/h3>\n<p data-start=\"6432\" data-end=\"6466\">Phil is building a system designed to:<\/p>\n<ul>\n<li data-start=\"6508\" data-end=\"6523\">Harvest premium<\/li>\n<li data-start=\"6526\" data-end=\"6545\">Anchor in valuation<\/li>\n<li data-start=\"6548\" data-end=\"6572\">Scale exposure carefully<\/li>\n<li data-start=\"6575\" data-end=\"6594\">Hedge systemic risk<\/li>\n<li data-start=\"6597\" data-end=\"6618\">Compound consistently<\/li>\n<\/ul>\n<p data-start=\"6652\" data-end=\"6756\">The house wins because it has a small statistical edge applied repeatedly. For Phil, that edge comes from:<\/p>\n<ul>\n<li data-start=\"6793\" data-end=\"6821\">Selling overpriced premium<\/li>\n<li data-start=\"6824\" data-end=\"6848\">Buying intrinsic value<\/li>\n<li data-start=\"6851\" data-end=\"6886\">Structuring spreads intelligently<\/li>\n<li data-start=\"6889\" data-end=\"6919\">Hedging before panic arrives<\/li>\n<\/ul>\n<p>In a market being reshaped by AI and structural change, Phil&#8217;s message is consistent: <em>don\u2019t gamble, build a repeatable edge and\u00a0compound it.<\/em><\/p>\n","protected":false},"excerpt":{"rendered":"<p>Phil walks though the HEAT Formula Financial H.E.A.T Podcast with Matthew Tuttle Phil discusses options strategies with Matthew Tuttle and Patrick Neville of Tuttle Capital Management. Timeline 00:00 Market Overview and Thematic Investing 03:17 The Secret Gap: Government Innovation and Future Technologies 06:09 Investment Philosophy: Be the House, Not the Gambler 09:13 Options Strategies: Selling [&hellip;]<\/p>\n","protected":false},"author":183,"featured_media":12857067,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[19951,45,26922,21,1,12,26306],"tags":[969,22131,26919],"class_list":{"0":"post-12858148","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-chart-school","8":"category-appears-on-main-page","9":"category-market-news","10":"category-available","11":"category-uncategorized","12":"category-phils-favorites","13":"category-webinars","14":"tag-charts","15":"tag-webinar","16":"tag-webinars"},"_links":{"self":[{"href":"https:\/\/www.philstockworld.com\/wp-json\/wp\/v2\/posts\/12858148","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.philstockworld.com\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.philstockworld.com\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.philstockworld.com\/wp-json\/wp\/v2\/users\/183"}],"replies":[{"embeddable":true,"href":"https:\/\/www.philstockworld.com\/wp-json\/wp\/v2\/comments?post=12858148"}],"version-history":[{"count":9,"href":"https:\/\/www.philstockworld.com\/wp-json\/wp\/v2\/posts\/12858148\/revisions"}],"predecessor-version":[{"id":12858187,"href":"https:\/\/www.philstockworld.com\/wp-json\/wp\/v2\/posts\/12858148\/revisions\/12858187"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.philstockworld.com\/wp-json\/wp\/v2\/media\/12857067"}],"wp:attachment":[{"href":"https:\/\/www.philstockworld.com\/wp-json\/wp\/v2\/media?parent=12858148"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.philstockworld.com\/wp-json\/wp\/v2\/categories?post=12858148"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.philstockworld.com\/wp-json\/wp\/v2\/tags?post=12858148"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}